Reality bites for Metro Pacific

The largest property transaction in the history of the Philippines is estimated to have lost Metro Pacific nearly $700 million.

One of the final chapters in the history of Metro Pacific's tortured development of the 214 hectare Fort Bonifacio site was formally closed last night. Eight years after its grandiose and record-breaking bid to develop the former US military base beat off competition from Ayala Land, the company was forced to cede control to its rival in order to manage its debts.

This saw First Pacific associate company Larouge BV formally transfer a controlling stake in Bonifacio Land Corporation (BLC) to a joint venture between Ayala Land and Evergreen Holdings, a company owned by pharmaceuticals tycoon Jose Campos. The stake took the form of a $90 million loan to Metro Pacific, which had been extended by its parent, Hong Kong-listed First Pac in April 2001 and has remained unpaid since December 2001.

As the loan was secured by a 50.4% stake in BLC, its transfer and cancellation will leave Metro Pacific with a 22.5% stake in BLC, which in turn owns a 55% stake in Fort Bonifacio Development Corp (FBDC). This is the company, which is developing Fort Bonifacio Global City and in which the government-owned Bases Conversion Development Authority (BCDA) holds the remaining 45%.

Very rough back of the envelope calculations based on the current peso/dollar exchange rate suggest that Metro Pacific has lost nearly $700 million on its investment since submitting a Ps39.2 billion bid in January 1995. After pledging 42% more than its nearest competitor (Ayala Land), the company gained a majority stake in the winning consortium, although the overall site available for development was subsequently reduced from 214 hectares to 151 hectares because of problems with squatters.

Over the next couple of years, local analysts estimate that Metro Pacific went on to spend up to Ps15 billion more to buy out its fellow consortium members and increase its stake in BLC to 72.9%. It has also spent at least Ps8 billion installing basic infrastructure including sewage and water pipes. Following the sale of the $90 million loan, it will be left with debts of roughly Ps4.1 billion.

In total, this amounts to an outlay of up to Ps66 billion ($1.22 billion).

In return, FBDC in which it owns a 55% stake, has recorded revenues of Ps34.18 billion from January 1997 to December 2001. As the Asian financial crisis and property slump bit deep into the company's ambitions, revenues dwindled markedly from Ps17.7 billion in 1997 to just Ps1.5 billion in 2001.

Having received Ps 4.7 billion in equivalent proceeds off Ayala Land and Evergreen for the loan, Metro Pacific is left with: a 22.5% stake in BLC valued at roughly Ps2 billion; its 10.4 hectare Pacific Plaza project within Bonifacio Global City; and Ps3.8 billion in properties also being upstreamed from the city to meet other debt payments.

In total, this amounts to roughly Ps30 billion ($556 million), a shortfall of Ps36 billion ($680 million).

However, for Metro Pacific shareholders the most galling aspect of the transaction must be the fact that the company is receiving far less for the stake than it would have done had it accepted the Gokongweis' $616 million bid for PLDT and BLC last summer. This valued the 50.4% stake at Ps50,000 per square metre, but was rejected by chairman Manny Pagilinan in defiance of First Pac.

ING, which advised First Pac on the sale of the 50.4% stake was first hired in autumn 2001 just before the company's $90 million loan to Metro Pacific fell due. The loan was initially extended in April 2001 as a bridge financing to prevent a funding crisis at its subsidiary following the redemption of an $80 million convertible bond. The loan was subsequently extended to December 2001 and at the time Ayala company officials said that First Pac was seeking $200 million for its entire 70% stake in BLC.

Just over a year later, the diversified conglomerate has at least received full principal re-payment from the loan, although the results of negotiations covering up to $26 million in unpaid interest have yet to be disclosed. The agreement between Metro Pacific and Ayala/Evergreen was initially forged in November last year, but the transfer was only formally signed off yesterday (Monday). It has yet to be formally approved by First Pacific's shareholders. ABN AMRO Rothschild is also acting as independent financial advisor.